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SMP: Silicon Valley Bank: Mismanagement Is Not an Excuse for Inefficient Regulation
My latest for the Sound Money Project on Silicon Valley Bank’s failure and financial regulation.
According to Michael Barr, the vice chair for supervision at the Federal Reserve, Silicon Valley Bank’s failure was a “textbook case of mismanagement.” Perhaps that’s unsurprising. Regulators are unlikely to conclude that the second-largest bank failure in American history was due to inefficient regulation. What did SVB management do? Why did they do it? And, was the problem purely inadequate management?
To understand SVB’s fall, we must look at its assets and liabilities. A typical commercial bank’s liabilities include a large number of small, insured deposits. This strategy is basic risk diversification. By dealing with many small deposits, a few withdrawals will not affect the bank’s financial situation. The risk of a bank run is minimized.
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